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Will Bombardier bail out of rail?

On 10 April suggestions arose in the financial markets that Canadian-based Bombardier Inc might sell its transportation interests for as much as CAD5.4bn (EUR4bn). Alternatively it has been suggested that the parent company could invite an initial public offering in its rail business that would enable it to retain a stake in its most successful division.

The company is Canada’s leading aerospace manufacturer, but is having difficulty financing its new C Series jet airliner due to delays and cost overruns. The company reported an annual loss in 2014 for the first time in nine years, had to raise CAD2.4bn (EUR1.8bn) in the markets, and its shares fell by 34%. Rail showed a profit of CAD429m (EUR317.5m) compared with a loss of CAD995m (EUR736.5m) on the aircraft side.

Bombardier started out as a manufacturer of snowmobiles, and acquired its first interest in rail with the purchase of Montreal Locomotive Works in 1975. After expanding in Canada with the purchase of UTDC and Hawker Siddeley, it went on to buy US companies Budd and Pullman-Standard, before turning to Europe with acquisitions such as BN (Belgium), ANF (France), Vevey (Switzerland) and Talbot and Deutsche Waggonbau in Germany. It was the acquisition of ADtranz in 2001 that turned it into the western world’s largest rail manufacturing business.

Our March analysis of the LRV market (TAUT 928) showed the company held orders for more than 1000 new trams.

Adding intrigue to the story, on 30 April Reuters and Bloomberg reported that the Chinese CNR Corp and state-owned CSR Corp are exploring a stake purchase in Bombardier’s rail business. While speculative at the moment, any detailed discussions cannot move forward until after the Chinese manufacturers complete a planned USD26bn merger next month – creating the world’s largest rail manufacturer.
That deal has now received final approval from China’s Securities Regulatory Commission and the Ministry of Commerce, as well as anti-trust authorities outside China. Indicating that the merger could be confirmed as soon as June, the first appointments have been made to the board of the new CRRC Corporation.

Bombardier currently has a number of joint ventures in China, including those to market its Flexity 2 low-floor tram platform to planned modern tramways across the nation, while CNR and CSR have so far focused their export efforts on Asia, South America and Africa. Acquiring Bombardier’s rail unit would give the merged conglomerate a major international presence, enabling it to take advantage of surging exports as well as major manufacturing capabilities in both Europe and North America.